US cinemas had a great summer but there’s a plot twist

NEW YORK – The hits just keep on coming. But not the ones movie theatres need.

Unwelcome forces – Netflix, 50-inch TVs, the Covid-19 pandemic – have buffeted cinemas for years. Now, staggering debt and a severe shortage of big movies to show in the months ahead imperil multiplex chains once again.

In recent months, the situation did not look so dire. Theatres were feeling newly optimistic, largely because Top Gun: Maverick and several other blockbusters showed that people still want to go to the movies. The Top Gun sequel has taken in an astounding US$1.5 billion (S$2.1 billion) worldwide, and Doctor Strange In The Multiverse Of Madness outperformed its 2016 franchise predecessor by 41 per cent.

“Let the good times roll,” AMC Entertainment chief executive Adam Aron┬ásaid during an earnings call last month.

And yet, behind that rosy view, instability lurked. Summer ticket sales still lagged significantly behind pre-pandemic levels. Some studios continue to release films on streaming services and in theatres at the same time, or bypass theatres altogether, and the cost of running a theatre keeps climbing.

Almost everyone agrees that the 117-year-old cinema business cannot keep going like this. But hardly anybody agrees on precisely the best way forward.

One obvious if drastic step, analysts say, is for the biggest cinema companies to close thousands of underperforming screens. There are 40,700 screens in the United States and Canada, and even some theatre executives concede that there should be no more than 35,000. A few think 25,000 is a healthier target.

About 500 screens have closed since the pandemic began, according to the National Association of Theatre Owners, a trade organisation. More closures are expected this fall: Cineworld, which operates Regal Cinemas, the No. 2 circuit in the US behind AMC, is preparing to file for bankruptcy. The company reported US$8.9 billion in net debt, including US$4 billion in lease liabilities. A Chapter 11 reorganisation would allow Cineworld to break some of its leases.

Attendance at movie theatres in the US and Canada peaked in 2002, when about 1.6 billion tickets were sold, according to the Motion Picture Association. The big studios and their speciality film subsidiaries released at least 140 films in theatres that year. This year, admissions are expected to fall below 800 million, in part because of plunging output by the biggest studios, which will release about 73 films in theatres, with big-budget sequels the most attended.

Over that same time, the number of movie screens has increased 14 per cent, as multiplexes have popped up in the far suburbs and theatres built during a boom in the 1990s have limped along on life support. In a report released on Aug 23, Mr Robert Fishman, a senior analyst at research firm MoffettNathanson, described the movie exhibition business as “in dire need of restructuring”,┬ánoting that many theatres are “connected to zombie malls”.

About half the movie screens in North America are controlled by AMC, Cineworld and Cinemark Holdings. Each lost money in the most recent quarter.

Between early April and the end of June, AMC reported revenue of US$1.2 billion and a loss of US$122 million. AMC has more than US$5 billion in debt, a colossal sum for a company that was generating about US$5.5 billion in annual revenue before the pandemic.

To regain its footing, AMC has courted dilettante “meme stock” investors, announced plans to sell AMC-branded microwave popcorn in supermarkets and even invested in a struggling Nevada gold mine. AMC has closed 98 theatres since the start of the pandemic, while opening 45, largely by taking over locations from smaller chains that went out of business during the shutdown.

Inflation poses a challenge for theatres. Almost all of them are raising prices, even though many consumers already view moviegoing as too expensive. This summer, the average ticket cost US$12, up from US$11.16 last year, according to EntTelligence.

A shortage of movies poses an even bigger problem.Theatre executives say they see only two mega hits on the horizon: Black Panther: Wakanda Forever, which arrives Nov 11, and Avatar: The Way Of Water, scheduled for Dec 16. NYTIMES